Wednesday, 30 September 2009 - 16:45
UPDATE: Swiss Fin Regulator Outlines Strict Oversight Goals
(Adds details, comments.)
ZURICH -(Dow Jones)- Switzerland's Financial Market Supervisory Authority, or FINMA, Wednesday outlined fresh oversight goals that will particularly affect the country's top banks UBS AG (UBS) and Credit Suisse Group (CS).
As part of the regulator's strategic targets for the period from 2010 to 2012, FINMA aims at reducing systemic financial risks, improve client protection and cooperate more closely with institutions such as the Swiss National Bank.
Switzerland has been deeply rattled by UBS's subprime fiasco, which risked derailing Switzerland's banking sector and economy, prompting regulators to introduce high capital requirements for its top banks and consider salary and bonus caps for managers.
The measures have turned FINMA into one of the world's most restrictive regulators and have earned it criticism from banks. In recent weeks, Credit Suisse and UBS officials warned against overregulation, although they acknowledge that fresh rules are needed.
But FINMA is unlikely to give in, saying it wants banks of "systemic importance, which are too-big-to fail, to comply with more stringent prudential requirements in order to strengthen their crisis resistance."
It added that banks such as UBS and Credit Suisse must "support the preventive limitation of inherent risks, especially in terms of governance, risk management, capital adequacy and liquidity."
Switzerland's banks have already the highest capital ratios in Europe and are likely to maintain these levels. Credit Suisse's Tier 1 ratio stood at 15.5% at the end of the second quarter, while UBS's ratio stood at 13.2%. The Tier 1 ratio denotes bank's balance sheet strength.
Most other large European banks have lower ratios in comparison, as German or U.K. regulators have been less harsh. Deutsche Bank (DB), HSBC Holding PLC (HSBA.LN), Royal Bank of Scotland Group PLC (RBS) and Unicredit SpA (UCG.MI), for example, have Tier 1 ratios of 11% or lower.
This discrepancy has stirred criticism that Swiss banks might lose out against their European and U.S. competitors that are still able to carry more risk on their balance sheets and produce higher profits.
Also, plans that FINMA wants to put a lid on excessive salaries and bonuses has drawn the ire from bankers, who say that Swiss banks are facing difficulties in hiring top industry talents due to these caps.
FINMA, however, like other regulators has identified that high, bonus-driven remuneration deals have partly provoked the financial crisis. Meanwhile, banks say that potential caps can only be introduced on an international level in order to have a level playing field.
Besides high capital requirements and potential salary caps that are mainly designed to protect bank clients and investors, FINMA wants the size of the country's big banks to be manageable. Also, it wants banks to be able to quickly divest assets during a crisis if need be.
"The systemic importance and damage potential of large, complex institutions must be restricted," FINMA said. "In the event of a crisis, it should be possible to quickly reduce risk positions and split off and sell entire business areas".
When UBS's investment bank got into troubled and needed to write down about $50 billion in toxic assets, plans to sell off the unit were discussed. However, such a plan proved to difficult.
Meanwhile, FINMA also said that it aims to work more closely with other financial regulators. "FINMA will take an active role in structuring the relevant international committees such as the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors and the International Organization of Securities Commissions."
Regulator Web Site: www.finma.ch
-By Goran Mijuk, Dow Jones Newswires, +41 43 443 80 47; email@example.com
(END) Dow Jones Newswires
September 30, 2009 09:45 ET (13:45 GMT)
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